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1 dmi:review design management and innovation 24:2 Walking The Walk: Putting At The Heart Of Business Paul Gardien and Ferdy Gilsing thinking comes to Philips, the health and wellbeing company.

2 By Paul Gardien and Ferdy Gilsing Making design a core function of this company improved collaboration among departments and transformed the way Philips does business. It has been so instrumental that Philips offers it as a model for other firms. Walking the Walk: Putting at the Heart of Business W hen it comes to successful business innovation, there can be no half measures. Just as many of the world s best designs are ones that get right to the heart of what makes people tick, so the design discipline itself has to work at the heart of a business in order to make an impact both on its customers and on its bottom line. Here, we discuss how the health and wellbeing company Philips is turning design into a core function, and we propose a new tool to help it and other firms turn their creativity into a strategic force. Just as companies have started to get comfortable with putting designers in the boardroom, it seems more radical changes are needed. One of the biggest advocates of design, the US journalist and academic Bruce Nussbaum, recently declared that design thinking was a failed experiment. In his view, companies that focused on design processes alone have not found the growth initially promised them. Figure 1 The changing role of design. In many ways, Nussbaum s opinion applies to Philips. Over the past 80 years, the company has evolved from one that used design as little more than an afterthought, into the home of one of the world s most renowned design studios. It pioneered multi-disciplinary, people-focused approaches, created visionary projects, and worked hard to promote the integration of design into its parent s business strategy. But this approach did not always translate into discernible profits. Part of the sticking point lay in the way Philips operated. Until recently, it functioned as what is called in corporate governance jargon a global service unit (GSU) a separate agency that leases out design services to the various sector and business groups within a company. Ultimately, this way of operating kept Philips and the Philips business at arm s length from one another, which sometimes negatively affected the success of both parties. To change that, Philips set out to transform itself into a core function of the company one that is able to balance close usability tool usability as tool usability Focusing usability tool tool on Focusing People on on business intimacy with strong functional thought leadership, enabling the whole organization to make better use of the powerful perspective that design thinking brings. Today, Philips is more like an integrated strategic partner than an outside agency. Instead of selling their services to other Philips sectors, its designers are embedded within the company s various business units from new lighting solutions to MRI scanners. Philips has also stopped looking at design-specific metrics to prove the value of its work. Instead, it focuses on collaboration to improve overall business metrics. In order to ensure the continuing success of the transformation, we have given our designers a number of enabling conditions, as well as a new model to help them track their progress toward maturity. The model, which we describe below, is crafted to provide specific guidance on how to integrate design functions into a business. Given that we could not find any single model that could help us in existing literature on the subject, we created our own. 54 DMI Summer 2013 DMI Summer People 1 1 differentiation tool differentiation as tool differentiation Supporting tool tool the Supporting Brand the the BRAND Brand business tool business as tool business business Fuelling tool tool Fuelling Innovation INNOVATION Innovation cultural tool cultural as tool cultural cultural Enabling tool tool Enabling Transformation Transformation

3 Stop selling the value of design through design specific metrics, instead emphasize collaboration (design doing), throughout the company. Figure 2 Transforming Philips from an ad hoc agency to a strategic business partner (based on the account management principles of Robert Miller and Stephen Heiman in their book, The New Successful Large Account Management, and on David Maister s The Trusted Advisor. By publishing this paper and sharing the new model we have developed, we hope to kick start a discussion within the wider design management community and find new ways to benchmark our work together. The changing role of design The recent transformation of Philips is a reflection of the immense change in the role that design has played within the corporate world over the past 30 years. In that time, the discipline evolved from being responsible for little more than the shape and color of products into being able to influence a company s entire business strategy (Figure 1). By the end of the 1980s, designers started to pick up on the importance of how people interact with products, which led to the influence of disciplines such as psychology and social anthropology on design practices. A decade later, companies were beginning to understand that the way consumers view a brand is not based solely on the use of its products and services, but also through all the contacts between user and brand, from advertising to packaging to Breadth of business issues commodity Ad-hoc relationship Cost driven programs Preferred Supplier High quality process improvement Integrated Supplier High service customer support. This created a need for a new breed of designer, capable of shaping the total user experience and of creating a consistent brand identity over all these touch-points. Since the arrival of the new millennium, that breed of designer has continued to evolve rapidly. Innovation was the watchword of the first decade, as design agencies set out to add new skill sets, such as strategic design, co-creation, and rapid prototyping to their teams. But now we realize that even that isn t enough. The world is facing huge problems of overpopulation, as well as shortages of food, healthcare, and energy. Also, innovation has shifted its focus away from the importance of technological improvements and toward the innovation of meaning. In order to connect with people, we need to create ecosystems, not just products. And to do so in an effective way, businesses need to understand what creates meaning for people in the first place. Therefore, design needs to be empowered enough to find the truly life-changing ideas. It needs to work at the heart of the business in a seamlessly integrated way so that it can create not Discussion on design strategy Partner Business issues Responsible for design strategy Strategic Partner Organizational impact Depth of relationship just new products, but also cultural innovations that enable social transformation. From service function to core function When design operates merely as an ad hoc service provider, its influence on business performance is limited. The main driver for maturity in the service context is design excellence and quality, but not necessarily business value. Perhaps this goes some way to explaining why, in the past, Philips was not able to see a significant return on its investment in design despite winning large numbers of prestigious design awards. So if Philips wanted to make full use of its competencies and provide maximum value to the company, it needed to find a new model. To help it do so, we started by analyzing the existing relationships Philips had with each of the 14 businesses within the company, each of which is itself housed under one of three main sectors healthcare, lighting, and consumer lifestyle (Figure 2). For each of these 14 businesses, which include personal care, home healthcare solutions, and consumer luminaires, we assessed its relationship with Philips based on a detailed matrix that described various aspects of the design operation, such as understanding the context, developing client relations, and developing value. From there, we worked with the Philips board of management to outline a number of new strategic organizational models for how Philips could improve those relationships. Together, we concluded that we needed to develop a balanced model that would help Philips to integrate its teams in the Philips sectors and at the same time bring thought leadership to the group level. Function Change Program In 2011, with the aim of transforming its discipline into a core function of Philips, Philips embarked on a process it called the Function Change Program. With new design chief service function Philips Service provider Receiving brief Transactional Project selling management Offer what we have Quality orientation Sean Carney on board, the process accelerated, and Philips shifted its focus from selling itself and the value of design to other divisions through design-specific metrics to collaborating with them from the get-go and proving by doing or walking the walk, if you will. Philips began by organizing its designers into four teams, one for each of the three sectors in Philips (Healthcare, Lifestyle, and Lighting), and one central team, called Group, which is focused on the design function, brand and innovation across all the sectors. (Group also works with Philips Research, Group Strategy, and other groups at the company level.) Of course, moving from service function to core function requires a lot more than shifting desks (Figure 3). New governance and enabling conditions were needed to accelerate the journey. For example: Chief Officer: Philips created the role of chief design officer (CDO) for every Philips sector to emphasis alignment with other functions (such as CMO, CTO, and CFO). The appointed person reports to the chief executive core function Philips Integrated Ownership on briefing process Budget ownership Programming Business partner (CDO) in business platforms Create access to what is needed Value orientation Figure 3 a service vs. design as a core function. 56 DMI Summer 2013 DMI Summer

4 Figure 4 The Function Maturity Grid (Gilsing, 2012). DESIGN PROGRAMMING DESIGN DELIVERY DESIGN TO INNOVATE DESIGN TO DIFFERENTIATE DESIGN TO OPTIMIZE DESIGN SKILLS COMPETENCE DEVELOPMENT CULTURE FOR DESIGN Maturity Level 1: Within function but in context strategy leads to design objectives, KPI s and improvement programs. programs are derived from business programs. Prioritization based on business needs. process defined. Resourcing within the function. Receiving design brief. Programmed contribution to innovation projects. Aligned with innovation themes. Contributing to the creation, management and orchestration of total brand touch points per category. Contributing to simplifying and value engineering design solutions Access to all design expertise s (comm. prod. serv.) Talents identified. Job rotation within the organizational entity (Sector). Areas for best practice defined. Relevant information available and accessible. Little awareness in the organization on the full potential of design to create business value. seen as costs. Maturity Level 2: integrated and aligned with other functions Integral part of all short, medium and long term business objectives. Participation in business programming and road mapping leads to design programs. Prioritization based on potential return. process and resource planning integral part of business process and footprint business. Ownership on briefing process. Front-end activities ensuring uptake. co-author of innovation roadmap and research themes, including front-end. facilitates the coherency of brand expression across all touch points. facilitates creation of optimizing platforms, roadmaps and standardization on a program level. Internal and external design expertise leveraged in projects. Succession planning leads to new design leaders. Job rotation within the function (Company). Internal and external collaboration increases competence and knowledge level. Knowledge dissemination embedded in w.o.w. High awareness that investments in design are essential for NPS, brand equity and innovation. Maturity Level 3: Measurable impact on business result and other functions Measurable influence on the long term vision and direction of the company. Integral part of management decision process. Measurable influence on the direction of business programs. delivery strategy based on measurable effectiveness and efficiency and supports future value creation. and design thinking contributes to redefinition of existing markets and categories. Pushing new paradigms, e.g. ecosystems. thinking contributes to defining the direction of the brand strategy and identity. thinking contributes to optimized processes, portfolios and value chain (end to end). World class design expertise s. Talent management extending to partners and universities. thought leadership recognized as benchmark competence recognized as benchmark. knowledge integrated in business knowledge management, contributing to learning organization. provides inspiration at a strategic level, while supporting direction setting and the creation of meaningful solutions on an operational level. officer (CEO) of his or her sector, as well as to the CDO of the overall company. Budget ownership: The company CDO and the sector CDOs have full ownership of the total company design spend. Previously, Philips sold its services to the main business in much the same way an external agency would. Management platforms: Sector CDOs and sector design teams have structural roles in the sector management teams and in relevant business platforms, such as the Philips innovation boards and brand boards. The business focus has moved from receiving a design brief to taking ownership of the briefing process. Shared design studios and communities of practice: The physical locations of the 500+ designers who work for Philips have not changed; they share studios in 18 locations around the world, from Shanghai to New Delhi, Pittsburgh, and Amsterdam. However, the way they behave within those locations has altered. Before the Function Change program, the teams would be managed hierarchical and segmented from the rest of Philips. Today, designers work directly with the businesses they re designing for and manage their own budgets. Maintaining the shared studios encourages designers working on different projects to find synergies and inspirations across sectors. Next to this, the company encourages communities of practice, which strengthen specific capabilities among designers in the 18 locations. These include, for example, a people-research community, as well as a service design group, and a data visualization team. The designers within each community often meet physically to work together on new project ideas that have grown organically out of those shared interests and skills. The Maturity Grid In order to ensure the success of the Function Change program, the teams needed a model to help them track their progress toward maturity something that would give them specific guidance on how to integrate and develop Capability review considering 9 elements approach strategy programming design delivery outcome to innovate to to optimize capability Culture for design 58 DMI Summer 2013 DMI Summer VISION REALITY design functions into a business. So we set about creating a new roadmap for how to develop the design function in the new context, to find a structured way to develop best practices and shared learning in order to truly integrate design within the main business. But despite a great deal of research, we could not find an existing framework that fit the bill. Previous models described design from a specific focus: design as approach, design as outcome, or design as capability. We concluded that we needed a combination of all these factors to ensure the best results. Building on our internal research, culture for design Figure 5 Key differentiators for design as a functional lead.

5 Notes 1 r. Chiva and J. Alegre, Investment in and Firm Performance: The Mediating Role of Management, Journal of Product Management, vol. 26, no. 4 (2009), pp it is worth noting that the highest maturity is not always the best one to aim for. Not every business in Philips, for example, needs to focus its strategy on the role of design as a driving force of innovation. This will depend on the nature, market position, and strategy of the business division. Figure 6 The three maturity levels of design within a company. plus a variety of existing studies from academics, design practitioners, and thought leaders on design management and change management, we devised the following framework, called the Function Maturity Grid. The Maturity Grid (Figure 4) describes on the vertical axis nine differentiators of design (Figure 5), each of which carries equal value and weight, clustered in the following three roles of design: design as capability (or who designs); design as approach (how they design); and design as outcome (what they design). Capability describes the design community itself. Within Philips, this means 500+ individuals in 18 locations, all practicing design and representing the customer in all aspects of the innovation process, with expertise in foresighting, interaction design, people research, service design, product design, and communication design. The differentiators in this section define the level of skills and competence of design in Philips s business. They exist to enable and support the design approach (design as approach) and enable optimal delivery of design contributions (design as outcome). Approach is the process of design thinking and co-creation to generate new ideas in a collaborative way with other disciplines. Philips is committed to achieving meaningful brand experiences using a process called High, a human-focused, multi-disciplinary, and research-based approach that allows the seamless integration of design into the business strategy. The differentiators on this level aim to describe the role of design to bridge vision with reality by envisioning where to go, defining what to do, and doing it efficiently and effectively. Outcome is the specific contribution design makes to the business. It describes the specific contribution of design in value creation, initially through new experiences, value spaces, and opportunities, then by developing people-focused brand experiences and orchestrating brand touch-points, and finally through simplifying and value engineering design solutions, portfolios, and the value chain. These three roles of design then develop over three maturity levels (Figure 6; see the horizontal axis in Figure 4), which show how designers within Philips and other companies can move toward a more deeply embedded and effective design strategy. Maturity level 1: Within the function, but in context. On this lowest level, the design function is integrated within the organization and the conditions of Function Change are in place. However, it is still rather isolated from other functions and focuses mostly on the effective delivery of all related design activities. Maturity level 2: Integrated and aligned with other functions. operates in closer collaboration with other functions by aligning its design activities with other business activities, and by representing design in key business platforms. Here, the focus is on managing effective and efficient design delivery. has become an integral part of some key processes. Through enhanced creative collaboration, a proactive design approach is used to facilitate creativity in end-to-end processes to define new opportunities and plan business activities. Maturity level 3: Measurable impact on business result and other functions. thinking and design doing are synonymous. Optimized and integrated design processes lead to better business performance and return on investments. At its best, design is fully integrated as a strategy throughout the organization and influences other functions, such as corporate strategy, technology research, new business, country sales organizations, and new revenue streams. Our assumptions are supported by Chiva and Alegre, whose research 1 shows that the effective use of design does not come about by accident, but rather as a result of targeted management practices and a higher maturity of the design function. They found that design investments only influence business performance when the company has a design management structure in place. 2 New areas for best practice We have found that our maturity grid can act as a benchmark reference guide to help Philips (and hopefully other companies) to find best-inclass ways of working and promote and enhance best practices. So far, we have used it in two major ways: To track the maturity of each business group. At Philips, the grid helps to chart the progress of Figure 7 Examples of practices and initiatives at Philips mapped on the Function Maturity Grid. Maturity Level 1: Within function but in context Maturity Level 2: integrated and aligned with other functions Maturity Level 3: Measurable impact on business result and other functions DESIGN PROGRAMMING DESIGN DELIVERY DESIGN TO INNOVATE DESIGN TO DIFFERENTIATE 1. New collaborative approaches Emerging Business Areas, Group Strategy Deep Dives 2. People Focused innovation Ambient healing environment DESIGN TO OPTIMIZE Culture for design Culture for design Culture for design DESIGN SKILLS COMPETENCE DEVELOPMENT CULTURE FOR DESIGN 3. Building new competences Digital accelerator 4. embedding design in Philips culture The innovation drive, design studios as creative hubs 60 DMI Summer 2013 DMI Summer

6 Through the EBA (emerging business areas) work, Philips helps to incorporate longer-term trend research into tangible new business territories with other internal partners. Figure 8 Examples of rapid contextualization in the digital domain. the design function within each sector, and to track the maturity of cross-functional teams with external business partners. This helps to align corrective measures. To promote cross-sector consolidation and a community of shared practices. The grid encourages different sectors to compare notes and share new practices for cross-sector competence. ers share the outcomes of annual reviews, as well as the conclusions of sector management review meetings and potential areas for action. teams can also choose a few differentiators to focus on in any given year, then set goals and track their progress across the maturity levels over time. To illustrate these uses, we have outlined below four examples of projects or initiatives where the grid has helped Philips to frame objectives and achieve new targets (Figure 7). 1. New collaborative approaches Philips already has a great deal of skill and experience in developing realistic visions of future projections. But before the Function Change program, it exerted less influence on how the company as a whole could make strategic use of that vision. Through activities dubbed emerging business areas (EBAs) and group strategy deep dives, Philips designers now apply their skills in a more collaborative way. Through the EBA work, Philips helps to incorporate longerterm trend research into tangible new business territories with other internal partners. Deep dives answer specific strategic questions in the company. In each case, the designers aim to build new business opportunities in existing markets or envision new customer journeys within existing business contexts. As part of this, Philips has developed two ways of helping its designers collaborate more productively. a) Rapid contextualization (Figure 8), in which they quickly create a highly visual landscape of s in a specific context as a basis for a shared understanding of new business opportunities. From this landscape, they identify opportunities they quickly explore using rapid co-creation. b) Rapid co-creation is carried out in workshops that Philips facilitates, and through dialogues with multidisciplinary teams that may include external partners. This allows the team to come to new and shared insights, quickly visualize ideas and concepts, and rapidly test how any potential proposition may be experienced by end users and stakeholders. This process is carried out either in an intense, quick-and-dirty way for example, in hackathons (3- to 5-day events in which anyone interested can come together to innovate in teams; see Figure 9) or developed over several months, with multiple iterations. 2. People-focused innovation: Ambient healing environments We have already seen how innovation has shifted its focus away from the importance of technological improvements and toward the innovation of meaning. In order to connect with people, we need to create experiences. And to do so, businesses need to understand what creates meaning for people in the first place. One way Philips designers address this is by using a tool called the experience flow (Figure 10), which creates a visualization of the whole customer journey in the context of a particular event or life experience. Today, by being deeply embedded within the business and its operational strategies from the beginning, designers can help to devise truly meaningful innovations and shape the design briefs from the get-go. A good example of how this approach has helped to create a much better experience for Philips customers is the result of a recent project called healing environments. As part of its research, Philips looked at how, for certain medical treatments, patients need to remain relaxed to ensure optimum results. By working closely with Healthcare and Philips Research from the very beginning, its designers helped to create a room that keeps a patient calm and mentally engaged (Figure 11). The solution includes a furniture unit that curves up around the patient s bed and displays relaxing videos on the ceiling panel. The unit also creates indirect dynamic lighting and soothing nature sounds that the patient actively chooses, giving him or her a sense of control. That project illustrates the way in which, by transforming into a core function, Philips has exerted a more positive impact on how the business innovates. But the 62 DMI Summer 2013 DMI Summer

7 Ferdy Gilsing is a senior manager of design strategy and innovation at Philips, responsible for design function strategy. He works to integrate design thinking and competences in Philips s strategy process. He also leads design programs in the area of innovation and consulting. Gilsing holds a master s degree in design management from the European Institute of Brand Management, specializing in embedding design to improve business performance. He was educated as an industrial design engineer at the University of The Hague, graduating in Figure 11. An ambient healing environment. Flexible, Relevant, and affordable Ready to CReate? Completely online M.F.a. design thinking 66 DMI Summer 2013 workshop spaces centrally located in the building, and break-out rooms and project spaces for longerterm activities. It houses the Digital Acceleration Lab, as well as several flexible experience labs for testing new propositions. Conclusion a discipline has matured in an incredible way over the past decades from what was essentially a styling tool into a vehicle for social and cultural change. In the same way, design has evolved within companies from a mere afterthought into a core function. In the case of Philips, it has stopped behaving like an outside agency that sells its services to other sectors within the business and begun instead to integrate with those sectors. It has also stopped looking at design-specific metrics to prove the value of its work and has started focusing on collaboration to improve overall business metrics. Today, designers are taking ownership and responsibility for delivering both design excellence and design value for the whole organization, not only for the parts to which Philips is asked to contribute. They are partners in business activities, while remaining members of a vibrant global design community. This transformation is driving the entire company toward making better use of the powerful perspective that design thinking brings. It is also allowing the discipline to become more visible and aligned with the Philips business and its innovation success. And it shines through in the results, such as the record-breaking number of design awards the company received in With this model, Philips is able to balance integration in the business with global reach and leadership. We use this new model within Philips to help spark discussions and set targets within our various design teams. By publishing this article, we would like to invite other companies and individuals to share their insights, so that together we might find even better ways to benchmark our design work. Acknowledgement The authors would like to thank the employees of Philips and other Philips departments, who have been instrumental in realizing the Function Change Program. We are particularly grateful to the company s chief design officers, Stefano Marzano and Sean Carney, for their design leadership over that past two decades. The maturity model explained in this article was originally developed in the master s thesis of Ferdy Gilsing, who would also like to thank Jos van de Zwaal of the European Institute of Brand Management for his invaluable input. The power of creativity and innovation (540)

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